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Output and inflation in the long run
Author(s) -
Ericsson Neil R.,
Irons John S.,
Tryon Ralph W.
Publication year - 2001
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.614
Subject(s) - inflation (cosmology) , economics , econometrics , sample (material) , markup language , cointegration , computer science , chemistry , physics , chromatography , theoretical physics , xml , operating system
Cross‐country regressions explaining output growth often obtain a negative effect from inflation. However, that result is not robust, due to the selection of countries in sample, temporal aggregation, and omission of consequential variables in levels. This paper demonstrates some implications of these mis‐specifications, both analytically and empirically. In particular, for most G‐7 countries, annual time series of inflation and the log‐ level of output are cointegrated, thus rejecting the existence of a long‐run relation between output growth and inflation. Typically, output and inflation are positively related in these cointegrating relationships: a price markup model helps to interpret this surprising feature. Copyright © 2001 John Wiley & Sons, Ltd.